Highlights of Report
Number:2012-41-013 to the Internal
Revenue Service Commissioners for the Small Business/Self-Employed Division and
the Wage and Investment Division.

IMPACT ON TAXPAYERS

Qualifying taxpayers who purchased a home in
Calendar Year 2008, 2009, or 2010 were able to take advantage of the First-Time
Homebuyer Credit (Homebuyer Credit), a refundable credit worth up to
$8,000.Through July 30, 2011, the IRS
reported that it processed more than 4.3 million claims for the Homebuyer
Credit totaling almost $30.4 billion.During that same time, the IRS completed 495,592 Homebuyer Credit
examinations, with 52,170 still to be closed.The purpose of these examinations is to ensure that only qualified
taxpayers receive the Homebuyer Credit.Examining Homebuyer Credit claims that pose the greatest compliance risk
is an effective use of limited IRS resources and avoids burdening compliant
taxpayers with an examination.

WHY TIGTA DID THE AUDIT

This audit was initiated because a prior TIGTA audit estimated that IRS
control weaknesses allowed taxpayers who most likely did not qualify for the
Homebuyer Credit to receive potentially erroneous refunds of more than $513
million.The overall objective of this
review was to determine whether the IRS was adequately addressing questionable
claims for the Homebuyer Credit.

WHAT
TIGTA FOUND

The IRS developed a comprehensive strategy to address erroneous claims
for the Homebuyer Credit.While it
properly evaluated the questionable claims that were selected for examination,
a large number of high-risk claims were not examined, and many of the
examinations conducted were unproductive.More specifically, some of the high-risk claims were never run through
the automated filters designed to select claims for examination.In addition, the IRS methods for determining
the highest risk claims were flawed.

TIGTA also identified an instance where the IRS exceeded its legal
authority in denying Homebuyer Credits to some taxpayers under
18 years of age.

WHAT TIGTA RECOMMENDED

During the course
of the audit, TIGTA made recommendations that resulted in immediate IRS
corrective actions.IRS management
modified their methods of determining high-risk claims and shifted examination
resources to more productive cases.They
also agreed to use a method other than post-processing math error authority to
address claims filed by under-age taxpayers.

In addition, TIGTA recommended that the IRS 1) use updated examination
results to make adjustments throughout the year, which will optimize the overall
examination results, and 2) ensure that all claims for the Homebuyer
Credit are run against IRS automated examination filters and that the highest
risk cases are selected for post-refund examinations.

The IRS agreed with
our recommendations.In its response to the
first recommendation, the IRS stated it routinely uses prior examination
results to adjust its workloads.Nonetheless, TIGTA found that the IRS did not
do this consistently in the case of Homebuyer Credit examinations.

The IRS disagreed with one of the outcome measures
discussed in this report.However, TIGTA
believes that the IRS did not consider pertinent data regarding its high
percentage of no-change cases for pre-refund Homebuyer Credit examinations.

READ THE
FULL REPORT

To view the report, including
the scope, methodology, and full IRS response, go to: